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Senator BINGAMAN. Dr. Yergin.

Dr. YERGIN. There is one interesting question I do not have the answer to, but it is worth pondering for all of us. The U.S. has become about 30 percent more energy efficient, and thank you for catching my arithmetic error. In the same time, the Japanese, working from a much narrower base, have become about 55 percent more energy efficient. It would be very interesting to understand what they did and how they have done it.

Senator BINGAMAN. Let me also ask, I know we have talked about how we have to get the Japanese and the Germans and everybody to participate in order to stabilize the price of oil. The little information I have been able to obtain indicates that the price of oil has not resulted in the dramatic increases in the price of gasoline in Japan that it has resulted in here in this country, and that in fact the consumers in Japan to date have not felt the kind of price shock that our consumers have felt here. Is that accurate, and if so, how do you explain it?

Mr. MARTIN. It is because they have a major tax on gasoline.
Dr. GIBBONS. They are already paying $3 a gallon.

Mr. MARTIN. The increment between what they are paying before and after is very small, compared to ours, where we have such a minimal price for gasoline.

Senator MCCLURE. Would you yield on that, because the Energy Information Agency indicates that the price of gasoline in Japan has gone up 29 percent since the end of July. Ours has gone up 24 percent, so that as a matter of fact, the gasoline price before taxes has gone up more in Japan than it has in the United States.

Dr. YERGIN. You see, it varies from country to country. Some countries, of course, their currency has appreciated and the Germans, for instance-and so they are seeing-and oil is priced in dollars. Not necessarily Japan, but other countries. In Italy, you know, it is almost $4 a gallon, and almost all of that is tax to begin with.

But the Japanese, where the Japanese have seen it is in their financial markets, where you have seen their stock market fall by roughly 50 percent, and you know, there is a suspicion-people tend to see things in simple terms, and there is a view in Japan as elsewhere that there is all a reason for this. It has to do, going back to some of the same kind of suspicions that existed in 1973.

But there is no question that the Japanese are having an oil shock right now, and it is felt in their financial markets, so we are going to feel that reverberation in our financial markets.

Senator BINGAMAN. Let me just ask a final question, and then I will defer to Senator McClure here, but the suggestion that we use the Strategic Petroleum Reserve to eliminate some of the volatility in the world price of oil, that suggestion has been run through the questions all morning here, and I guess my question is, if it makes sense to use the Strategic Petroleum Reserve to moderate price increases, does it not also make sense to use the Strategic Petroleum Reserve to moderate price decreases?

Dr. GIBBONS. If you are smart enough about it, you buy low and sell high, and in time-of course, we probably will do the opposite. When prices are very soft, that is the time to fill the reserve, and

when they are very hard, it is time to spin back out. It is sort of a Keynesian philosophy applied to oil.

Senator BINGAMAN. Well, we have never had that as a policy of our Government, that we would try to moderate price decreases by use of the Strategic Petroleum Reserve. That would be anathema to the free market mentality which has driven our national energy policy for the last 10 years, at least as I have understood it.

Dr. GIBBONS. But Senator, if it were invoked in response to geopolitical things which are nonmarket activities, in my book it seems to me that is a better way of saying it than we are simply going to use it to try to level out price or overwhelm the market. It is to complement the market when the market is being overwhelmed by events outside the traditional free market.

Senator BINGAMAN. Senator McClure.

Senator MCCLURE. Thank you, Mr. Chairman. Thank you, gentlemen, for your testimony. It has been instructive, and I would just wish we could get this consistently before the American public every day of every year until we do take those combinations of actions that Congress ought to take to result in an energy policy that is much more affirmative than the one we have now.

Mr. Martin, I appreciate your suggestion a moment ago that yes, indeed, there have been attempts in the past-attempts by the past administration as well-to put elements of energy policy in place and the Congress of the United States has rejected those efforts. I think that is not just a partisan political statement. It is also a political statement in the sense of the mood of the country.

There are those who do remember past disruptions. There are those who do know that there are certain actions we could take that would make a difference, and some have suggested them, and they have not been adopted. I am a little bit tempted-more than a little tempted--to point out that, indeed, some who are complaining about the high price of oil have contributed to that high price of oil by inhibiting supply.

That is, voices within this Congress, and some on this committee, who are now complaining about-terribly concerned about-the effects upon the people of this country in terms of price, or in terms of economy and unemployment and all the rest of the economic effects of this price, but the actions taken in this committee and in this Congress have helped create the scenario in which that is exactly the reality.

But that is not just their fault. That reflects the mood of the American public. We want it both ways. We want it all ways. We want cheap and easy fixes. We do not want to pay any price for any solution.

We have an environmental problem? Well, certainly, we will pass a Clean Air Act. What is the Clean Air Act going to do to energy self-sufficiency in this country, or competitiveness in the world, Mr. Schuler? We cripple ourselves in a whole variety of different ways in terms of energy policy, because we have conflicting demands on policy, and we oftentimes ignore the energy policy side as we seek to find a solution to the other policy questions we have. Environment is a real concern, but we cannot even drill in the Santa Barbara area, where we know the oil is there. It is there in such quantity that it seeps out. We would help the oil seeps if we

would just drill and produce some oil, and might protect the environment of the Santa Barbara coast if we would stop those oil seeps. The way to do that is to get some salt water down in those formations instead of oil that is coming out.

We cripple ourselves in a whole variety of different ways in terms of energy policy. I know Senator Bingaman has great concern about the WIPP project. It is not a domestic energy policy, but it is a nuclear policy for this country, and we are trying at the same time to deal with nuclear waste.

We are totally paralyzed in this country with respect to Yucca Mountain. We cannot move forward. The Secretary of Energy has tried. That is energy policy. But we are totally, completely stopped in developing that energy policy, because of other concerns and other considerations.

I told Senator Murkowski I was sorry he was leaving, because I was going to disagree with him in part-a very small part—and he understands. There is no current oil shortage. Now he said we should not say that, but it is a fact. World oil production capacity today closely matches world oil consumption, and I am talking about with Iraq and Kuwait out.

Now, you are right, Dr. Yergin. It is a very tight supply system, and it does not work well when it is tight, and people get nervous when the supplies are tight. They begin to worry about whether they will have theirs. I sat with the president of Delta Airlines a few nights ago, and he said the current price increase in jet fuel is going to cost Delta Airlines $160 million a year.

He is one of those that is out there buying on the futures market, buying product, and he is one of those bidding the price up, because even though it costs him $160 million a year, what would it cost him if they did not have enough to fly?

So they are going to pay the price to make sure that they have a supply of jet fuel in the future, no matter what the price is, within limits, and they are going to drive the price up, because that is exactly what they have in mind, in a very, very tight market.

So while there is no current supply, people are worried about whether there will be a current supply shortage 2 months from now, and that points up another reality, and that is the loss of refining capacity in Kuwait and Iraq was probably more important to the world in the short run than was the supply of crude, because the real shortage that we are going to have this winter is of home heating oil, and I do not mean to exacerbate the fears in that market, because finished product capacity is less than future finished product demand during this winter.

No wonder people are worried about home heating oil, and I notice that this budget package, while it has a tax on everybody else, does not have any tax on home heating oil. It just happens to be that the Majority Leader is from New England. I suspect that might have something to do with the shape of that budget package. That is how we get distorted in our congressional actions, if all we focus on is energy.

I do want to at least point out a couple of things with respect to current speculative forces in the market. The Energy Information Agency indicates that prices in Belgium have gone up 41.5 percent since July 30. In France, they have gone bad for United States. I

up 56 percent. In Germany, they have gone up 42 percent; in Italy, 41.5 percent; in the Netherlands, 35.5 percent; in the U.K., 37.7 percent; in Japan, 29 percent; and in the United States, 24 percent. So prices have moved up less here on the retail market for finished product. This is retail motor gasoline prices, excluding taxes and duty. They have gone up less here than they have in the other countries, which also says-and I think it is rather instructive to look at this-the more dependent you are on imports, the more price volatility there has been, with the exception of the U.K., and with, perhaps, the exception of Japan.

So the Continent has gone up very rapidly, and those are transportation fuels, too. It is not just their industrial load or their home heating loads that have gone up. This, we are talking about motor gasoline prices. Speculative forces are controlling the market today. The psychology is more important than the supply. And that gets us back to two suggestions that were made, and I think they are worthy of exploring.

I do not believe in using SPRO for strictly economic, short-term economic swings. Every time the Government has tried to control prices has been a disaster. Every time we tried to use stockpiles for economic purposes, we have really hurt basic production capacity in this country. Our question is, in this regard, at what margin of price change does it become more than just a temporary market swing?

Can anybody tell me what Saddam Hussein is going to do? Can you, Mr. Schuler, indicate that the United States is going to abandon international political goals and allow him, Saddam Hussein, to remain in possession of Kuwait?

Mr. SCHULER. I think that the only, nobody can predict what is going to happen, and if there is—but we can predict that if there is military hostilities, the situation is going to get a lot worse before it gets better.

Senator MCCLURE. That is in terms of energy supplies. And some will suggest that unless there is military action, the situation will get worse in other respects. And that is one thing that I want to point out is, while it surely, the deployment of U.S. forces in the Gulf costs us a lot, it costs us a lot less than another $10 increase in the price of oil.

Mr. SCHULER. It may have both.

Senator MCCLURE. We may have the best of both worlds, you are telling me?

[Laughter.]

Senator MCCLURE. We will have hostilities, and death, and high prices, and economic recession all at once. Well, that is one possible scenario. But I think that the evidence was abundant that if we had not done anything, Saddam would possess the Gulf oil production capacity today. He has sent a lot more troops into Kuwait than was necessary to pacify Kuwait.

He is a reckless man, power-hungry, megalomaniac. He is a man who is, has the capacity to make massive misjudgments about the consequences of his actions, and there are, you will read a lot in the last few weeks about the United States should have known he was up to something, sending all those troops down to the border of Kuwait, but nobody seemed to be saying, United States should

have known something about him sending all those troops into Kuwait about what he is going to do next.

So I think there is a reason for us, in terms of security and the economic impact upon this country, to have our presence in the Gulf today. I hope it is brief. I would like to see Saddam leave the scene one way or the other, back out of Kuwait, whatever it may be, have an internal coup inside of Iraq, which many people are suggesting may happen, and I talked to some people who have been in contact with some of the refugees who are talking about political unrest inside Iraq.

I hope it is true. I hope the embargo works. I hope it works short of having to go to war. There could be very real consequences, however, to us removing our troops without having attained any of our objectives in terms of both current and future policy in this area. So I do not know what the answer is, and I cannot make a prediction about whether or not this is a short-run price effect. Mr. Schuler, I share your concern that we do not dissipate SPRO on the basis of a marginal action that may last a long while. We could withdraw 5 million barrels a day, or 3 million barrels a day, or whatever it was we decided, and dissipate that reserve over a long period of time, and when the real crunch came, we would not have 90 days' supply, we would have 45 days' supply, or 50 days' supply. And I am a little bit concerned about the suggestion that was made by someone that we should diversify our sources of importation, because oil is a fungible commodity. It does not matter where we get it from, or where somebody else gets it from. It is a worldwide market and it will flow to wherever the demand is, and wherever the price is. So it does not matter much whether we get it from that source or if somebody else does, as long as we have any kind of a joint international action.

It will not be as 1973 was, with only an embargo against the United States and the Netherlands. Under the current situation, if the supply for the Persian Gulf is lost, everybody loses. And you may well have the Dutch being the major importer of Venezuelan oil.

We, at the same time, have done nothing in this country to encourage the construction or the maintenance of existing refining capacity. And we can pump the oil out of that ground down there a lot faster than we can process it through our refineries, I suspect; I do not know that.

And any test that was really meaningful has to test that, too. Can we pump it into pipelines that go to refineries that can handle it? Or will we pump it into pipelines that go to refineries that cannot handle it?

We were very fortunate, indeed, that some other countries have invested in refining capacity in this country. I am grateful the Venezuelans did. I am grateful that the Saudis did. Because it does do something for stability of supply and stability of an energy relationship between our country and theirs when they have the stake in the refining capacity in this country as well as the market in this country.

But there are some people who raised their eyebrows when foreign investors bought up domestic refining capacity: Gee, that is

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